Set forth below is the text of a comment that I recently posted to the discussion thread for one of my columns at the Value Walk site:
And you think it is nonsense that your wife is questioning you on the reliance of a $500 million windfall to provide for the family, versus you getting a job that provides a steady paycheck?
We obviously don’t meed $500 million to get by, Sammy. I believe that it is entirely reasonable to expect that we will see a settlement of that size following the next price crash. But most of that money is gravy, things that will help us with extras, like charitable donations or building new businesses either in the investing realm or outside of it. All that we need personally to get by is a middle-class income.
I think it is a little silly to think that we will not be seeing a middle-class income coming in following the next price crash. The shift from Buy-and-Hold to Valuation-Informed Indexing is the biggest advance in the history of personal finance. There are millions of investors who want to know about a means of investing in stocks that reduces risk by 70 percent. My site has a mountain of materials on the subject that is not available at any other site on the internet. How could these realities not translate into an income far, far bigger than what a middle-class family would need to get by on?
My wife is in good company in not feeling certainty re these matters. If everyone in this field who understands the importance of Shiller’s revolutionary findings appreciated how much money there is to be made developing the Valuation-Informed Indexing concept in great depth, there would be thousands of people doing what I am doing. There are not thousands of us. So lots of people clearly have doubts.
The explanation of this puzzle is that humans learn by talking things over with other humans. We are not information processing machines, as the Buy-and-Holders would have it. Ideas pop into our heads. Then we test them by bouncing them off other humans. Then we make adjustments as those humans identify flaws in the new ideas. Then we dig deeper on the aspects of the new way of looking at things that pass muster. Over time, our confidence in the new ideas grows. That’s how change is achieved in this world.
This process of gradual change has been blocked in the investing realm. Shiller pointed out the weaknesses in the Buy-and-Hold model 35 years ago. That should have started the process of questioning. But investing is a uniquely important subject matter and the errors that Shiller discovered were fundamental ones and his conclusions were to a large extent counter-intuitive. Humans are reluctant to accept change. When the changes are as big as the ones we are talking about here and the thinking behind the new ideas is as counter-intuitive as what applies here and the risks of getting it wrong are as great as they are here, humans are VERY reluctant to accept change. So the process has been held back for a good long time now.
All that said, the evidence that Fama made a non-intentional mistake is very strong, in my assessment. It is impossible that Fama and Shiller are both right. If Shiller is right, Fama is wrong. I believe that Shiller is right. So I naturally have concluded that Fama is wrong (which is not at all to say that Fama did not make a huge positive contribution — I believe that he merited that Nobel prize). So I believe firmly that we are as a society in the process of making the transition from Buy-and-Hold to Valuation-Informed Indexing and that that process will speed up considerably following the next price crash, when the need for consideration of the new ideas will become compellingly evident to each and every one of us.
The pioneers in development and promotion of the new model are going to be the ones who make the big bucks. I am not in this primarily to make big bucks. I certainly would like to earn a middle-class income but my primary goal is the journalistic one of telling a story that very much needs to be told. But I certainly do not have any objection to earning the big bucks. If that’s how it plays out, and that is indeed how I expect it to play out at this point in the proceedings, good for me, you know? I will do my best to make good use of the money.
Any money that I earn from this will be well-earned. The positive leverage here is off the charts. I have spoken to college professors who believe that Valuation-Informed Indexing is the future and who want to teach it to their students but who are afraid to do so today. It’s the same with academic researchers. It’s the same with bloggers. It’s the same with economists. It’s the same with investment advisors. It’s the same with policymakers.
Can you imagine how much progress we are going to be making in this field when we all feel free to post our honest views at every site we visit? I want to know Jack Bogle’s sincere beliefs re how stock investing works. I want to know how he thinks Shiller’s findings affect his strategy. I don’t think that Bogle is necessarily going to endorse Valuation-Informed Indexing, at least not in the short term. But I do think that he is going to have lots of interesting things to say that until this date he has not said. I want to know what he thinks on about 20 different questions. It may well be that, when Bogle addresses himself to these matters, he will convince me that I am wrong re some things that I have said. That’s of course what I want. I want to get it right. To get it right, I need to be hearing feedback from giants like Bogle.
I am not hearing from giants like Bogle today. That’s what needs to change. We all want the same things. We all want to know about stock investing really works. We all want to invest effectively. We all achieve that dream together when we all give each other permission to share our sincere beliefs on all questions that come up. When we get to the other side we are going to be hearing things we have never heard before from Bogle and from Shiller and from Bernstein and from Swedroe and from Richards and from Schultheis and from Pfau and on and on and on and on.
How much do you think the people of the United States will determine it was worth for someone to hang in there for 15 years and do the work that was needed to open up that flood of good stuff? I have a funny feeling that there won’t be a single person saying that it was not worth a lot more than $500 million. So I am not too worried about whether I will be able to cover my bills or not once we get to the other side together and leave the nasty stuff behind us and take this thing in a positive and life-affirming direction.
But it is hard for my wife to see that as clearly as I do today. She hasn’t been on the front line for 15 years as I have. I probably wouldn’t be so clear about it myself had I not seen all that I have seen and had not engaged in all the discussions that I have engaged in. I have learned day by day by day and my confidence that we will see a positive result in the end has grown day by day by day. It’s not fair for me to expect others who have not been through the same experiences to see things quite as clearly.
The good news is that everything that I have experienced over the 15 years is documented at my web site. We will be able to go through all of it together and learn from it together. That’s what I live for. It is my Life Project to enhance human knowledge in that sort of way. I am extremely humbled that I was chosen (by God or Evolution or whatever it is that you believe does the choosing) to be the one to carry out this important work. It is my intent not to let down the thousands of good people who have put their trust in me and who have told me that they are praying for my success.
Does that help a small bit?